Economics 100

Introduction to Economics
Spring 2011
Horwitz

Conceptual Workshop #1: How Demanders React to Price Changes

In groups of four, please discuss and respond to the following series of questions. One
member should be a notetaker and use a separate sheet of paper to record your responses
so that they can be turned in at the end of the exercise. Please be sure that the names of
all of your group members appear on that sheet. Over the next class or two, we will
discuss the concepts that help to answer all of these.

1. Imagine you are the author of a book who gets a royalty payment of 10% of the total
receipts (the number sold X the price) from the sale of the book. You get a phone call
from your publisher telling you they are increasing the price of your book from $25 to
$30. Should you be happy about this? Why or why not? What assumptions are you
making about the change in quantity demanded in your answer? What elements of a
good, in this case the book, will determine whether your assumption is valid?

2. Two of the most common products to offer coupons in the newspaper are breakfast
cereals and household cleaners. What is it about those goods that leads their
manufacturers to offer coupons? Can you name any other products that frequently have
coupons that fit this explanation?

3. Why is it unusual to see coupons for products like a Harry Potter book?

4. More generally, why would sellers who are interested in maximizing their profits ever
decide to lower the price of the goods they are selling? Assume that each unit the firm
sells costs the same to produce no matter how many units of the good it sells.

5. Why would it not be all that great to have a monopoly in producing margarine? What
kinds of goods are best to have a monopoly over? Frame your answer in terms of the
answers you gave to the previous questions.

6. How is a coupon different from just lowering the price of the good? What advantage
is there to the seller from giving out coupons rather than lowering the price? What is
probably true of those who look for and use the coupon? What is probably true of those
who buy the good without a coupon?

7. “Now I really get it” question: how does this discussion relate to why you can
purchase a ticket to fly on the very same flight on the very same plane for less if you buy
it a month in advance than if you buy it three days before, and if you stay over a Saturday
night?

8. “Now I REALLY get it” question: how does this discussion help to explain why each
of you have differing amounts of financial aid to attend SLU?